U.S. judge skeptical of Facebook settlement over ad product

SAN FRANCISCO | By Dan Levine

SAN FRANCISCO Aug 2 (Reuters) - A U.S. judge said he has
"significant concerns" about a proposed legal settlement over
accusations that Facebook violated its members' rights through
the its 'Sponsored Stories' advertising feature.

The comments came from U.S. District Judge Richard Seeborg
on Thursday at a hearing in San Francisco federal court.
Facebook and attorneys for the plaintiffs had argued that the
settlement -- which includes changes to Facebook's privacy
settings -- represented roughly $123 million in value.

However, the company is only slated to pay about $20 million
in cash.

"That doesn't make any sense to me," Seeborg said.

Five Facebook members filed a lawsuit seeking class-action
status against the social networking site, saying its Sponsored
Stories feature violated California law by publicizing users'
"likes" of certain advertisers without paying them or giving
them a way to opt out. The case involved 100 million potential
class members.

As part of the proposed settlement, Facebook agreed to allow
members more control over how their personal information is
used. In the opinion of one economist hired by the plaintiffs,
and contained in a court filing, the value to Facebook members
resulting from the changes is about $103 million.

However, Facebook will pay $10 million for legal fees, and
$10 million to charity, according to court documents.

Seeborg must approve any settlement, and he questioned why
the class members should not also be able to recover any money.

"I want to know more about why that is so," Seeborg said.

Facebook attorney Michael Rhodes said the parties couldn't
come up with a mechanism to figure out the value of each user's
individual endorsement. He also said that the changes to the
site -- such as disclosures and ability for parents to opt out
their children -- are "unprecedented" for social media sites.

"I would submit to you it has a significant benefit to the
class," Rhodes said.

Additionally, the Facebook attorney said the Sponsored
Stories opt out for minors was a compromise, because the site
did not want to provide a universal opt out for adults, because
it must recover ad money in order to operate.

"We are a commercial enterprise," Rhodes said. "There is no
obligation to join Facebook for free."

Robert Arns, an attorney for the plaintiffs, said his team
thought they could win a massive verdict against Facebook, but
were motivated to settle because they feared such a result might
be reversed on appeal.

A final decision from Seeborg is not expected for several
months.

The case is Angel Fraley et al., individually and on behalf
of all others similarly situated vs. Facebook Inc, U.S. District
Court, Northern District of California, 11-cv-1726.